Businesses in Pakistan are gradually being inclined towards Islamic Banking Industry (IBI) and the system to sustain or expand their operations in the targeted market with Islamic Banks has successfully provided a financing facility of more than Rs. 1 trillion to various corporations.
According to the State Bank of Pakistan (SBP), the financing of the Islamic Banks increased to Rs. 1.035 trillion by the end of September with constant and gradual surge in the availing of the facility by private sector corporations.
The network of Islamic banking industry consisted of 21 Islamic banking institutions; 5 full-fledged Islamic banks and 16 conventional banks having standalone Islamic banking branches. The value of full-fledged Islamic Banks’ financing and related assets surged to Rs. 673 billion whereas the financing value of Islamic Banking Division of conventional banks stood at Rs. 362 billion.
In the first quarter of financial year 2017-18, IBI extending financing facility of Rs. 58 billion to corporation of large and medium sized mainly on running financing and fixed investment.
Bifurcation of financing and related assets (net) among full-fledged Islamic banks and Islamic banking branches of conventional banks shows that financing and related assets (net) of full-fledged Islamic banks grew by 5.1 percent (Rs. 33 billion) during the review quarter and recorded growth of 7.3 percent (Rs. 25 billion) by end of September 2017.
As against conventional banks, Islamic banks and division do not extend loans to corporations or customers as part of the Sharia guidelines, however banks themselves trade with their customers to provide them the required objects, that can be machines, raw material, house, cars and etc,.
Ahmed Ali Siddiqui, Director Center for Excellence in Islamic Finance at IBA, said the acceptance of Islamic banking has been on the rise which saw the growth in the customer base and resulting the financing of Islamic Banks.
Among the customers, bank financing increased for energy and infrastructure projects besides automobile and housing finance mainly on the increasing domestic demands and growth in disposable income, he added.
Meanwhile, the asset quality indicators of Islamic banking industry, including non performing finances (NPFs) to financing (gross) and net NPFs to net-financing were recorded at 3.5 percent and 0.7 percent, respectively by end of September 2017.
Sectors of IBI Financing
Production & transmission of energy and textile sectors remained two main leading sectors and their share in overall financing of Islamic banking industry stood at 12.9 percent and 11.5 percent, respectively.
Review of client-wise financing shows that corporate sector accounted for 71.3 percent share in overall financing of Islamic banking industry followed by commodity financing having 12.3 percent share by end of September 2017. Like previous quarters, the share of small and medium enterprises (SMEs) financing and agriculture financing in overall financing of Islamic banking industry remained low compared to overall banking industry’s averages during the period under review.